SEC Commissioner Peirce Expresses "Grave Concerns" over Implementing Global ESG Standards

SEC Commissioner Hester M. Peirce expressed "grave concerns" about imposing ESG disclosure standards and taxonomies. She asserted they could "commandeer" private capital and could lead to systemic instability.

In a speech delivered at Eurofi in Stockholm, Sweden, Ms. Peirce argued that ESG standards are not necessary because materiality-based disclosure standards already help investors consider a wide range of factors before making investment decisions. She highlighted several reasons why implementing a standard ESG taxonomy is unwise.

Ms. Peirce called efforts to implement elaborate ESG disclosure standards and taxonomies futile when classifying a full range of human economic activity. She argued that inflexible taxonomies provide "static solutions to dynamic problems," such as food insecurity, water shortages and climate change. Instead, Ms. Peirce said that a principles-based framework, while it will not guarantee funding for innovation, will (i) elicit material information on companies and (ii) not limit access to capital based on specifics of innovation types.

By establishing ESG taxonomies, Ms. Peirce cautioned that investor confidence may be misplaced and result in concentrating capital that could lead to systemic instability. For example, she referenced the lead up to the 2008 financial crisis where policies favoring certain asset classes created "dangerous instability" for the financial system. Further, she expressed concern that some economic activities would be underfunded due to their incompatibility with ESG taxonomies.

Ms. Peirce questioned the recent calls for "regulatory convergence" of ESG standards from regulators. She argued that if by convergence, regulators mean to implement international ESG standards that are essentially identical, it will raise the risk of (i) making the distortion of capital flows more pronounced and effect a "global asset bubble," (ii) creating difficulty for regulators to establish standards that are relevant on a global scale and (iii) undermining national sovereignty and laws. Ms. Peirce stated that if regulators implement ESG standards that allow for mutual recognition of different approaches rooted in financial materiality, then convergence across jurisdictions could provide a "positive development."